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Mar. 8, 2013

Liquid Assets

By Jeffrey Steele, Contributing Writer

With the nation in the grips of a long-term drought and the prospect of water shortages growing more serious and widespread, water sub-metering has become an increasingly talked-about issue in the multifamily sector.Sub-meters bring consumption decisions home for residents and make water consumption personal, says Thomas R. Davis, senior vice president with Boston’s Recap Real Estate Advisors, a consulting firm focusing on affordable housing issues. Some sub-meter arrangements are merely informative, while others quantify usage in dollars and bill residents for their consumption.“If you’re being charged for your usage, it becomes much more relevant to you than if you’re simply being given information,” Davis says.

Howard Behr, vice president with the Business Development and Sub-metering Services Group at Costa Mesa, Calif.-based NWP Services Corp., agrees water sub-metering is very effective at lowering consumption.

“There have been enough studies out there that prove consumption changes,” Behr says. “It reduces consumption at the resident level and motivates them to make a statistically significant reduction. There’s a definite benefit there. Also, doing water sub-metering in multifamily benefits building owners. It either passes the cost along to residents or reduces consumption.”

Low-income housing holdouts

While water sub-metering in the multi-housing sector has proven a key driver of the kind of behavioral change needed for conservation, sub-metering is practically nonexistent in the low-income housing sector. “There is a lot of attention to water conservation measures in low-income housing,” Davis says. “But water sub-metering hasn’t taken as prominent a role as replacing fixtures.

“Owners are replacing shower heads and faucets, replacing toilets, or replacing the guts of the toilets to make them lower flow. That’s where a lot of the attention has been, because there’s a fairly quick payback. The cost of these conservation measures is relatively low, and the savings pay you back in a year or two . . . Some owners are playing around with water sub-metering, but it hasn’t been a big focus in the affordable housing sector.”

Part of the reason it hasn’t is that much of the U.S. affordable housing inventory is in old buildings. The majority of those buildings were constructed prior to 1980, before statewide energy building codes were adopted, Davis says.

Retrofitting older buildings to introduce sub-metering can be daunting. It’s far easier and more affordable to install low-flow and other water-conserving fixtures in older buildings. That’s where owners have placed their efforts.

There’s another problem with introducing sub-metering in the low-income housing sector, according to Behr. “It’s more challenging to service that market, to get them to make a decision,” he says.

“It’s not done as frequently, because if the property is truly in the public housing sector, they may not have the capacity to charge people for it.

“And yes, the managers may be able to charge and pass along the charge to the public housing authority. But if the people using the water are not faced with incentives, they are not going to change.”

The split-incentive problem

Water is no different from other utilities in confronting what Davis terms “a split incentive problem.” When a utility is paid for by an owner, the owner has an incentive to invest in equipment that is energy or water efficient. That’s because the owner gets a payback from reduced consumption. When the utility is paid by the resident directly, he or she has an incentive to change behavior—but the owner doesn’t have an incentive to install high-efficiency fixtures.

“Right now, we have this ‘either-or’ situation,” Davis says. “Sub-metering creates a potential solution to align the incentives if there’s a mechanism for the owner to pass along some marginal costs of the high-efficiency equipment. Right now, in many states, the regulations about sub-metering utilities tend to only allow the owner to pass through the actual cost of consumption. If the goal is to promote sub-metering, the affordable housing funders and regulators could mandate sub-metering, but I don’t think that’s the right answer.”

However, he adds, if the goal is to maximize the water conservation impact from both high-efficiency equipment and behavior change, the split-incentive problem needs to be addressed. Changing regulations around sub-metering could help. Utility regulators may want to create incentives for water utilities to reduce consumption.

Other utilities, such as electric companies, have created incentives, subsidies and other programs to encourage their consumers to install higher efficiency equipment in response to regulator incentives imposed on the utility, which also eliminates the need to build new electric generation capacity.

A call for education

One thing’s for sure. The issue of water consumption is only going to become a greater concern in the years ahead. Already, it has led to mandates regarding sub-metering in cities like San Diego and Seattle and states like North Carolina, Massachusetts and Texas, Behr reports. “In some places, it’s required that you put in a water sub-metering system when you build,” he says.

“And in other places, if you want to bill residents for water consumption, you have to have sub-metering. It’s hard to find market-rate multifamily buildings that are newly built anywhere in the U.S. that don’t have water sub-metering,” adds Behr.

For substantive changes in water consumption to take place, education must be a priority, says Martin Levkus, general manager and director of client services with Colorado Springs, Colo.-based YES Energy Management, which installs sub-metering devices, captures the reads, bills residents for their portion of consumption, and is also involved in utility expense management.

According to figures Levkus has come across, U.S. citizens use an average of 150 gallons of water a day. In the United Kingdom, it’s 40 gallons; in, China 22; and in Kenya, 13. “We have a lot to learn,” he says. “If we can bring everyone down to about 100 gallons a day, that’s going to be a huge savings.”

By 2050, 48 states will face serious water shortages. Within three years, 36 of those states will have water supply problems, among them California, Nevada, Arizona, Georgia and New Mexico, Levkus says.

“We’re part of an industry group, the Utility Management and Conservation Association (UMCA), and we’re getting involved in lobbying efforts,” he says. “I was surprised to learn how many states have regulations prohibiting sub-metering or allowing only limited sub-metering.

“With shortages certain to occur, it should be our focus to promote sub-metering in the years ahead.”

NYSERDA:
Submetering Incentives Available Now to All Building Types

According to Michael T. Colgrove, director of energy programs, New York State Energy Research and Development Authority, New York City office, “Any master metered building with five or more units can now participate in NYSERDA’s Advanced Sub-metering Program (ASP). As a result of the recent adoption of updated sub-metering regulations by the New York State Public Service Commission, the restriction limiting participation to market-rate buildings is gone. NYSERDA pays 50 percent of the installed cost of sub-meters, up to $250 per sub-meter, and also provides incentives for efficient appliances and lighting, so residents see optimum savings in their electric bills. For more information on ASP, or to get started, go to nyserda.ny.gov/multifamily.”


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